In a landmark judgment in order to fulfill one of the objects with which the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as “The Code”) was enacted particularly with respect to operational debts. In the matter of K. Kishan v. M/s Vijay Nirman Company Private Limited, a two-judge bench of Hon’ble Supreme Court comprising of Hon’ble Justice R. F. Nariman and Justice Indu Malhotra held that the provisions of the Code cannot be invoked with respect to operational debts if a proceeding is going on under the Arbitration and Mediation Act, 1996 (hereinafter referred as “the Act”).

The court while disposing of this matter, relied upon several noteworthy judgments like Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353 and observed several judgments of foreign jurisdictions like Australia, the United Kingdom, and Singapore in order to come to the conclusion. The brief factual matrix is that an application was made under section 34 of the Act, and meanwhile, The National Company Law Tribunal (hereinafter referred as “NCLT”) admitted a petition under section 9 of the Code. The Tribunal opined that since the claim stood admitted and there was no stay ordered on the said award, therefore the necessity under section 9(5) of the Code to ascertain if there exists any dispute regarding operational debt stands negated as there exists no dispute. The order of the Tribunal was appealed but the appellate authority upheld the order of NCLT. This order stood appeal before the Apex Court.

Hon’ble Supreme Court held that “in so far as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicatory process under sections 34 & 37 has taken place.”

Before concluding the judgment, the court also took note to make certain observations, incidental to this matter like-

  • In case of considering the limitation period applicable to the arbitration award, it has to be demonstrated that to the Court that a period of 90 days and 30 days discretionary period has passed and no petition has been filed under section 34 or no belated petition under section 34 has been filled;
  • In cases where an application under section 14 of Limitation Act, 1963, then insolvency proceedings cannot be initiated until section 14 application is adjudicated upon;

Section 238 of the Code does not stand in contradiction to the Act in the present case, as both are working in consonance to decide if a dispute exists or not.

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Judgment: K. Kishan v. M/s. Vijay Nirman Company Pvt. Ltd.